Obstacles Remain for the Housing Recovery

by 22 Apr 2013

Considering how quickly the housing market has paced a recovery over the past three quarters, it would be tempting to assume that the rebound is so strong as to not face likely economic opposition. Property values have risen in tandem with new home sales, and America’s property sector has become so appealing that it is even attracting aggressive foreign investment. Homebuilder earnings have also jumped drastically, suggesting that positive gains in the housing market are having ripples across other sectors, especially corporate profits. In fact, much of the gains in the housing market seem to have emerged in the wake of dissipating anxieties, as consumer confidence has largely sustained positive housing sector behavior through the first months of 2013.

However, according to new analysis from CNN.com, not all of housing’s potential roadblocks have been safely surmounted. In taking a macroscopic view of the American economy, no one sector ever truly persists in isolation. As the CNN.com report notes, in order for the housing recovery to sustain its momentum far past this year, it will be necessary for the greater economy to keep pace. This aligns particularly firmly with qualms around the state of the job market and professional prospects of young adults. Today’s 20-somethings are shouldering an unprecedented amount of student loan debt, and if opportunities for career building and professional advancement remain slim, there’s little incentive for them to become homeowners.

This also spills over into concerns about mortgage attainability among potential homebuyers. Professional stability and accessibility to salaried positions are directly tied to lessening the burden of student loans and staving off the possibility of a damaging credit history. Considering lukewarm activity in the housing sector in Q1 2013, there’s still reason to expect a demographically tied dip on the housing market’s prospects. As the CNN.com report noted, only 88,000 jobs were added in March, the poorest monthly accumulation since June 2012. While singular health in the housing market has yielded a breadth of benefits for Americans nationwide, the returns will be diminishing assuming the greater economy doesn’t keep pace.

On the subject of segmented market health, the CNN.com piece also notes that much of the housing rebound has likely been investor driven. Echoing concerns that regional elevation in property values has been orchestrated by hedge funds (mimicking economic trends similar to those that preceded the 2008 bubble), the CNN piece also mentions that current economic trends have made property purchase exceptionally easy. Low interest rates, a broad inventory, and diminished property values, have made advantageous (not to say aggressive) property purchase feasible. Taking a view of the potential for recently bought property to appreciate in value, those with no intention of occupying or developing their purchased property have been making portfolios of recently acquired real estate. Once economic trends shift away from low interest rates and easy availability of cheap property, the market could hit a point of comparative stagnancy.

Ultimately, apprehension around an infant rebound is a predictable development, especially considering how long-standing the housing quagmire has been. Concrete foundations, whether through an economically comprehensive recovery or sunnier career prospects for future homeowners, will ultimately be what determines housing’s long-term outlook. Seeing positive quarterly numbers after four years of unease is nevertheless a relief, but it can distract from what ultimately yields financial stability.
 

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